Debt Deferral Arrangements with the ATO

Debt Deferral Arrangements with the ATO

Sarah Dunn and Annemarie Wilmore discuss the ability of the ATO to take legal action to recover outstanding taxation liabilities irrespective of whether the taxpayer intends to pursue action through the courts.

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The Commissioner of Taxation (Commissioner) can take legal action to recover outstanding taxation liabilities irrespective of whether the taxpayer intends to pursue objection or appeal rights through a Court or Tribunal. This presents both taxpayers and the Commissioner with some practical issues to deal with, particularly given that any taxation debts are generally due and payable within 21 days, whereas an objection or appeal can take several months, if not years to finally resolve.

In circumstances where the taxpayer intends to pursue objection and/or appeal rights, the Commissioner is able to consider deferring the commencement of recovery action in relation to an outstanding tax debt based on an assessment of the likelihood (or risk) of not being paid in the future if the Commissioner is ultimately successful. Depending on the risk to the revenue the deferral arrangement with the taxpayer may include the taxpayer paying 50 percent of the disputed debt up front, providing an acceptable security for the debt, or agreeing to pay the debt by installments.

The cases of Caratti v Commissioner of Taxation [2017] FCA 70 and Bazzo v Commissioner of Taxation [2017] FCA 71 emphasise the importance of specifying precisely which debts have been deferred. In Caratti the Court explored whether the taxpayer’s arrangement with the Commissioner included only the additional tax and penalty liability as well as general interest charge (GIC) accrued up until 7 August 2015, or whether the arrangement extended to include GIC accruing after 7 August 2015 and until the issues in dispute had been resolved.

The Court found that the Commissioner was entitled to recover amounts of GIC accruing from 8 August 2015 onwards as they were outside the particular arrangement entered into.